Like many Jewish people
Einstein was fortunate enough to be in a position to leave Germany when the
Nazis came to power. He went to the USA and there witnessed first hand the
misery and chaos of the 1930’s depression. He was not a politician or an
economist, but his deep concern for the fate of humanity led him to apply his
powerful intellect and supreme talent for analytical thought to the suffering of
the people. In a book entitled The World as I See It, published in English in
1935, he described his general philosophy of life and comments on the economic
crisis of the time. We notice straight away that Einstein was as consistent a
materialist as it is possible to be without having mastered dialectical logic, a
discipline which he does not seem to have approached. On page 2 of this book he
approvingly quotes Schopenhauer’s famous aphorism, “a man can do as he wills, but
not will as he wills.” The view that it is the objective world of nature,
existing externally and independently to thought which determines what we will,
and not the subjective self, is profoundly materialistic.

Commenting of the obvious
social conflicts of the time, Einstein expresses the view that all class
divisions in society are ultimately maintained by on force, and in a section entitled
"Thoughts on the World Economic Crisis", (reproduced below), seriously considers
the socialist solution to the economic crisis as it had begun in the Soviet
Union. It is no wonder, then, that he became subject to vicious criticism from
reactionary individuals. Later, during the 1950’s, Einstein objected to the
witch-hunt by the House Committee on Un-American Activities and supported
nuclear disarmament. Speaking out against the McCarthy witch-hunt he said “the
current investigations are an incomparably greater danger to our society than
those few communists in our country ever could be. These investigations have
already undermined to a considerable extent the democratic character of our
society.” He is also quoted as saying “I have never been a communist but if I
were I would not be ashamed of it.” Such carefully worded statements reflected
the position he was in; as a Jewish refugee from Nazi Germany, seeking asylum in
reactionary America, he had to be careful not to offend the powers that were.
Indeed, it is now known that he was subjected to state surveillance, and that
the F.B.I had a file on Einstein 1,500 pages long. Here, then, is what Einstein
wrote on the world economic crisis of the 1930’s in his book, The World as I See
It, beginning on page 71.

Terry Button, June 2008

Thoughts on the
World Economic Crisis.

If there
is one thing that can give a layman in the sphere of economics the courage to
express an opinion on the nature of the alarming economic difficulties of the
present day, it is the hopeless confusion of opinions among the experts. What I
have to say is nothing new and does not pretend to be anything more that the
opinion of an independent and honest man who, unburdened by class or national
prejudices, desires nothing but the good of humanity and the most harmonious
possible scheme of human existence. If in what follows I write as if I were
clear about certain things and sure of the truth of what I am saying, this is
merely done for the sake of an easier mode of expression. It does not proceed
from unwarranted self-confidence or a belief in the infallibility of my somewhat
simple intellectual conception of problems which are in reality uncommonly
complex.

As I see
it, this crisis differs in character from past crises in that it is based on an
entirely new set of conditions, due to rapid progress in methods of production.
Only a fraction of the human labour in the world is needed for the production of
the total amount of consumption-goods necessary to life. Under a completely
free economic system this fact is bound to lead to unemployment. For reasons
which I do not propose to analyse here, the majority of people are compelled to
work for a minimum wage on which life can be supported. If two factories
produce the same sort of goods, other things being equal, that one will be able
to produce them more cheaply which employs less workmen – i.e., makes the
individual worker work as long and as hard as human nature permits. From this
it follows inevitably that, with methods of production what they are today, only
a portion of the available labour can be used. While unreasonable demands are
made on this portion, the remainder is automatically excluded from the process
of production. This leads to a fall in sales and profits. Businesses go smash,
which further increases unemployment and diminishes confidence in industrial
concerns and therewith public participation in mediating banks; finally the
banks become insolvent through sudden withdrawal of deposits and the wheels of
industry therewith come to a complete standstill.

The
crisis has also been attributed to other causes which we will now
consider.

(1)
Over-production. We have to distinguish between two things here – real
overproduction and apparent over production. By real over-production I mean a
production so great that it exceeds demand. This may apply to motor-cars and
wheat in the United States at the present moment, although even this is
doubtful. By “over-production” people usually mean a condition of things in
which more of one particular article is produced than can, in existing
circumstances, be sold, in spite of a shortage of consumption-goods among
consumers. This condition of things I call apparent over-production. In this
case it is not the demand that is lacking but the consumers’ purchasing-power.
Such apparent over-production is only another word for a crisis and therefore
cannot serve as an explanation of the latter. Hence people who try to make
over-production responsible for the crisis are merely juggling with words.

(2)
Reparations. The obligation to pay reparations lies heavy on the debtor
nations and their industries, compels them to go in for dumping and so harms the
creditor nations too. This is beyond dispute. But the appearance of the crisis
in the United States, in spite of the high tariff-wall protecting them, proves
that this cannot be the principle cause of the world crisis. The shortage of
gold in the debtor countries due to reparations can at most serve as an argument
for putting an end to these payments; it cannot be dragged in as an explanation
of the world crisis.

(3)
Erection of New Tariff-walls. Increase in the unproductive burden of armaments.
Political insecurity owing to latent danger of war. All these things add
considerably to the troubles of Europe but do not materially affect America.
The appearance of the crisis in America shows that they cannot be its principle
causes.

(4)
The dropping-out of the two powers, China and Russia. This blow to world trade also does not touch America very nearly and therefore
cannot be a principal cause of the crisis.

(5)
The economic rise of the lower classes since the war. This, supposing it to
be a reality, could only produce a scarcity of goods, not an excessive supply.

I will
not weary the reader by enumerating further contentions which do not seem to me
to get to the heart of the matter. Of one thing I feel certain: this same
technical progress which, in itself, might relieve mankind of a great part of
the labour necessary to its subsistence, in the main causes our present
troubles. Hence there are those who would in all seriousness forbid the
introduction of technical improvements. This is obviously absurd. But how can
we find a more practical way out of our dilemma?

If we
could somehow manage to prevent the purchasing-power of the masses, measured in
terms of goods, from sinking below a certain minimum, stoppages in the
industrial cycle such as we are experiencing to-day would be rendered
impossible.

The
logically simplest but also the most daring method of achieving this is a
completely planned economy, in which consumption-goods are produced and
distributed by the community. That, in essentials, is what is being attempted
in Russia today.
Much will depend on what results this mighty experiment produces. To hazard a
prophecy here would be presumption. Can goods be produced as economically under
such a system as under one which leaves more freedom to individual enterprise?
Can this system maintain itself at all without the terror that has so far
accompanied it, which none of us “westerners” would care to let himself in for?
Does not such a rigid, centralised system tend towards protection and hostility
to advantageous improvements? We must take care, however, not to allow these
suspicions to become prejudices which prevent us from forming an objective
judgment.

My
personal opinion is that those methods are preferable which respect existing
traditions and habits so far as that is in any way compatible with the end in
view. Nor do I believe that a sudden transference of the control of industry to
the hands of the public would be beneficial from the point of view of production;
private enterprise should be left its sphere of activity, in so far as it has
not already been eliminated by industry itself in the form of cartelisation.

There
are, however, two respects in which this economic freedom ought to be limited.
In each branch of industry the number of working hours per week ought so to be
reduced by law that unemployment is systematically abolished. At the same time
minimum wages must be fixed in such a way that the purchasing power of the
workers keeps pace with production.

Further,
in those industries which have become monopolistic in character through
organisation on the part of the producers, prices must be controlled by the
state in order to keep the creation of new capital within reasonable bounds and
prevent the artificial strangling of production and consumption.

In this
way it might perhaps be possible to establish a proper balance between
production and consumption without too great a limitation of free enterprise and
at the same time to stop the intolerable tyranny of the owners of the means of
production (land, machinery) over the wage-earners, in the widest sense of the
term.